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Student Loans: Deal or No Deal?

Jun 26, 2013 1:58 pm ET

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By Josh Mitchell and Corey Boles

A bipartisan group of four senators tentatively struck a deal Wednesday to avert an increase in the interest rate on some federal student loans, aides said. But an aide to the Senate’s top Democrat immediately threw cold water on the plan.

The deal would link the interest rate on all new student loans to the government’s borrowing costs, specifically the yield on the 10-year Treasury note. That’s similar to a plan passed by the GOP-led House and one proposed by the White House. The deal would prevent the interest rate on so-called subsidized Stafford loans from doubling to 6.8% from 3.4% for new loans taken out starting Monday, July 1. Existing loans wouldn’t be affected.

Under the deal, and at current Treasury yields, the interest rates on federal student loans for the coming school year would vary between roughly 4.45% and 7%, depending on whether the loan is taken out by an undergraduate, graduate student or parent. Currently, rates vary between 3.4% and 7.9%. The rate on a particular loan would be based on the Treasury yield and remain fixed for the lifetime of that loan…